"AIG continues to make good on its commitment to pay the American people back," the one-time insurance giant and current liquidation special's CEO said today. Its customers may be a different story.
AIG announced that it has reduced its debt to the federal government by $25 billion--it now owes slightly less than $100 billion--giving the New York Fed big preferred stakes in a pair of subsidiaries it plans to sell off in the not-too-distant future. Another piece of AIG is also set to go, with a bid on its way for the insurer's aviation-leasing business, International Lease Finance Corp.
Peachy. Too bad things are not going as well as planned at the firm's flagship insurance business, renamed Chartis to help eliminate that awful Hank Greenberg smell. Seems it may be looking at a $12 billion shortfall, which makes AIG's proclamations of the soundness of its insurance business sound, to this untrained ear, rather like a lie.
According to the Sanford C. Bernstein report, just about all of the insurance industry's troubles can be traced to the growing inadequacy in AIG's reserves. Take the company out, and the rest of the industry looks pretty healthy. Even the report's author, Todd Bault, colors himself surprised by the findings.
Digging out of this new hole could cost AIG about one-third of its market value, about $10 per share, according to Bault, in "some kind of reserve charge."
Report Cites Big Shortfall in Reserves at A.I.G. [NYT]
AIG reduces government borrowings by $25 billion [AP via Google]
AIG closes debt for equity deal with NY Fed [Reuters]
Bid nears for AIG aviation unit stake [FT]